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much you need to save monthly to collect that amount: When you know the amount of travel corpus you will need, work backwards to determine the amount you will have to save every month. To do this, you will also have to assume an expected rate of return you will earn on the amount you save.
Choose suitable investment avenues to invest: This step goes hand in hand with the previous step. The expected returns vary with the kind of investment you make. For example, equity investments give you better returns compared to debt instruments and are best suited if your vacation is planned more than 3 years from today. As these investments give a high return over the long term, the amount you need to save on a monthly basis is also lower than when you invest in low yielding investments. On the other hand, if you plan for a vacation in the short term (ie: less than 3 years from today), it is better to opt for the safer debt instruments. However, this will give you a lower return, and as a result, you will have to save higher on a monthly basis.
Encash your investments before your vacation: Planning and investing for your vacation is not sufficient; you should also ensure that you encash your investments in a timely manner. Sometimes, equity investments can become risky if you do not encash it till the last minute. It is always better to partially shift to safer debt investments as you approach the vacation date.
The above steps must be followed when you plan financially for your vacation. If you do not plan in advance, you may end up taking a personal loan or will have to dig into your savings to fund your vacation. These are not financially prudent measures and will have a negative impact on your personal balance sheet. Once you decide on your savings and investments, you must begin your bookings and planning atleast 6 months in advance to get various benefits. Let’s briefly look at both the financial and non-financial benefits of planning your vacation in